Capacity Ratings – get informed for better results

In my early days as a prospect researcher, I used to be a “Just the facts, ma’am” kind of researcher and report writer. A “here’s what I can see. I have no idea what the rest looks like so I can’t even guess for you” kind of gal. I was so afraid to be wrong.

Except I already was wrong.

Capacity ratings are a killer for prospect researchers to figure. We do our best, but our ratings are never going to be perfect. There’s too much we don’t (and will never) know about high net worth individuals’ financial situations. But that doesn’t mean we shouldn’t try.

Because there are those who study HNWI in lots of detail for a living (besides us!), and who know how these folks hold their assets. The information these experts gather and publish (usually for free!) can greatly inform our work.

And I now know that it’s a huge mistake not to use it. Because fundraisers don’t expect us to be perfect. What they expect is that we will give them our best, informed answer. Which means we need to be informed. Once we understand these reports and what they offer us, we can start using them to help us better calculate capacity ratings.

If we know a high net worth individual’s real estate, we can use the ratios from the WWR to extrapolate what their total asset portfolio might be. Our internal dialogue would go like this:

“Mr. X has $50 million in total assets that I can see, so he definitely qualifies as a HNWI.

I know from CapGemini that real estate (excluding primary residence) makes up about 13.5% of the typical North American HNWI’s assets. Based on the $20 million in non-residential real estate I can see that he owns, I’m going to calculate that Mr. X’s total estimated assets may be closer to $150 million.”

If we’re using the normal giving ratio, five percent of $150 million ($7.5 million) is vastly different than five percent of $30 million ($1.5 million), right? That might be a scary extrapolation for some to make, but what if it’s closer to the reality and we’re missing out asking for what a donor could – and would be willing to – give?

There are similar reports we can draw on, too, to help us calculate capacity, including the Knight Frank Wealth Report and the Credit Suisse Global Wealth Report. Don’t be afraid to try. Front-line fundraisers and researchers should work alongside each other to test them out and see if calculations like these get you closer to the mark.

A DATA-DRIVEN PROPOSAL

But maybe you’re a bottom-line numbers kind of person…

It’s time, then, to test things out for yourself using real data. Your own data.

At the end of your fiscal year (or the end of your campaign) compare the capacity ratings you gave major donors vs the gifts they actually made to see how close you were to the mark. As you’ll note from the comments to my last blog post, veteran research director Mark Egge did exactly that, and discovered that

“It didn’t work out perfectly on a person-by-person basis, but in the aggregate, of the donors who actually gave to the campaign, the total amount of their gifts was equal to the total sum of their capacity. (Yes, I realize that it is entirely possible that our ratings were “self-fulfilling prophecies,” so of course we came out right on target. I doubt it though — our gift officers were expert at maximizing gifts from each prospect, and the rating did not dictate the ask amount — a well-crafted conversation with the prospect did.)

Wouldn’t an exercise like that help you revise up (or down) your gift capacity ratings to fit your specific organization?

As Mark pointed out, there’s a Catch-22 conundrum: if your capacity ratings and your donation receipts track exactly, does it mean that you were spot-on with your ratings or that they were a self-fulfilling prophesy?

ARE THEY SO INCLINED?

Or, is it because the ratings were handicapped, as in sports scoring?

It appears in Mark’s case that the gifts his organization received were truly at their donors’ capacity, a combination of great fundraising and highly inspired donors.

But many organizations will calculate a prospect’s capacity and then discount that amount by how much they think is realistic to ask for given the individual’s closeness to the organization.

And I’m fine with that. Done well, an inclination rating can provide you with even more ways to learn about your donor base.

Let’s talk more about inclination ratings next week. In the meantime, what do you think about capacity ratings?